August 18, 2010
Missouri insurance director, other state regulators to examine practices of life insurance companies
Huff: consumers need to know their settlement options
Jefferson City, Mo. - Missouri Insurance Director John M. Huff has been named to a national group seeking to ensure that consumers understand their options when receiving life insurance payouts. So-called retained-asset accounts (RAAs) have been in the news in recent weeks. Some life insurance companies give beneficiaries the option of receiving payments in a lump sum, or having the money deposited into an RAA, which is similar to a bank account. The consumer is then allowed to write checks out of the account.
The National Association of Insurance Commissioners (NAIC) has established a working group made up of 12 state insurance regulators, including Huff, to examine the use of RAAs. Nationwide, there have been very few consumer complaints about RAAs, but some concerns have come up recently:
- Because the money is deposited into an account, consumers may not be aware they have the right to claim the funds in a lump sum.
- Insurance companies earn interest on the money while it's in the RAA.
- Checks written by a consumer out of an RAA may not be as widely accepted as a check from a bank or credit union
- RAAs are not insured by the FDIC, but they are insured by a state fund. Similar to the FDIC, the Missouri Insurance Guaranty Fund covers consumers if their life insurance company fails. The limit is $300,000, which is actually higher than the FDIC coverage limit of $250,000.
"A retained-asset account can be a good option for life insurance beneficiaries, as long as they know exactly what their options are," said Huff. "Our NAIC working group wants to know if consumers in Missouri and across the country are fully aware of their rights. We'll be looking at insurance company correspondence, policies and other notifications to make sure they're as clear as they need to be."
The RAA working group held its first hearing at an NAIC meeting in Seattle on Aug. 15.
Huff offers these tips for dealing with life insurance:
- Review your policies every few years. You may have a decades-old policy that is no longer a good fit. You may be over-insured or under-insured.
- If you are the beneficiary of a life insurance policy, contact the insurance company soon after the death of the insured. Be prepared to provide a death certificate.
- Make sure you read and understand all information the insurance company sends to you, and take your time to determine the right payout option for you.
- Consult a trusted financial adviser or the Missouri Department of Insurance if you need help.
Consumers with complaints or general questions about insurance can call the department's Insurance Consumer Hotline at 800-726-7390 or visit insurance.mo.gov.
About the Missouri Department of Insurance, Financial Institutions & Professional Registration
The Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP) is responsible for consumer protection through the regulation of financial industries and professionals. The department's seven divisions work to enforce state regulations both efficiently and effectively while encouraging a competitive environment for industries and professions to ensure consumers have access to quality products.